|A property is
often the major asset owned by an individual or a couple. Whilst
care should be taken not to use it purely as an object of tax planning,
certain steps might be considered by most couples (married or unmarried).
|There are two ways in which a property may be jointly owned
by two or more persons:
1. Joint Tenants
|This is the arrangement
most often used by couples as it does mean an easy transfer of property
to the survivor when a partner dies.
|Holding a property
as joint tenants means that on the death of one spouse (or partner)
his or her interest in the property immediately and automatically
passes to the surviving spouse or partner regardless of how long they
survive you by, i.e. This cannot be prevented by anything said about
the property in the Will.
|All the surviving
joint owner needs to prove absolute ownership of the property is
the death certificate of his/her spouse or partner.
benefit of joint tenancy is that it avoids the cost and delays
involved in obtaining a grant or representation (Probate) on
the death of the first joint tenant to die.
|For the purpose
of Inheritance Tax (IHT), if the survivor is a spouse the interest
in the property is IHT exempt on first death. If the combined value
of a husband and wife's assets (including the house) are greater than
the nil-rate band, or there are children from a previous marriage, or there is a need for creditor protection then consideration might be given to owning the home
as tenants-in-common. Coupled with the appropriate Will this can provide
an opportunity for tax mitigation whilst ensuring security for the
|At the time of
writing each person has a nil-rate band of £312,000. This is
the amount they can leave before their estate would be liable to IHT.
Tax will be charged at 40% on the sum above the nil band rate.
2. Tenants in common
under a tenancy in common passes by Will or on Intestacy (where there
is no Will), and not automatically to the surviving co-owner. A tenancy
in common allows the first spouse to die to leave his or her share
away from the survivor. The effect could be shared ownership between
the surviving spouse and children/step children or other relative(s).
If the gift is made absolutely (without condition) it is possible
that the child or other beneficiary may want the house sold to realise
consideration needs to be made when deciding to sever a joint
tenancy and how the estate will be distributed on first death
to protect the surviving spouse and preserve the estate in an
appropriate and practical manner.
a life interest is the best way of protecting the surviving spouse
from the possibility of losing the right to live in the matrimonial
home. This has the effect of granting the survivor the right to live
in the deceased's portion of the property but not ownership. On the
death of the second spouse the property reverts to the children or
other named beneficiaries. However, the occupant will be deemed to
have had an interest in possession and no IHT saving is achieved.
solution is for a husband and wife to make Wills leaving an amount
of assets up to the nil-rate band (and this can include their respective
interest in the property) in a discretionary trust. The surviving
spouse's right to the home is guaranteed as part-owner and first-named
|Fiona and Simon own a house worth £300,000 together as tenants in common. They make Wills leaving their respective shares of the house to each other conditional on surviving at least 30 days, and if not to their son David. Fiona and Simon die within 1 year of one another.
|Simon’s half share (£150,000) is held by his personal representatives for Fiona if she survives by 30 days. As she dies after this period it then passes to her on trust then to her son David on her subsequent death. There will be no IHT because it falls within her nil-rate band (as she enjoyed the use of it!) Fiona’s half share (£150,000) also passes to David. There will be no IHT because it falls within Fiona’s nil-rate band.
Advantages of severing tenancy
- Can prevent
children/stepchildren or other beneficiaries from losing out should
a surviving spouse remarry or cohabit.
gives you the freedom to gift your share of the property, either outright
or by giving the right to occupancy (e.g. to your spouse or partner)
with directions as to what happens to the property after the occupants
- If combined
with an appropriate Will (promissory trusts), it can maximise tax
- If the
surviving partner has been given the right of occupancy using a 'property
trust' then they are only able to access the equity in their share
of the property (the other share does not belong to them).
- The property
does not pass automatically as it does for joint tenants and a grant
of representation (Probate) will be required.
some people the standard arrangement of joint tenants will meet
their requirements and will be the most convenient form of ownership.
However, in an increasing number of circumstances (especially following the legislative changes announced on 9th October 2007) particularly where couples have been married before, or simply want to endure
that 'their half' of a property is protected, it may be appropriate
to reorganise the ownership as tenants in common. If you do
this it is vital to make suitable Wills as the rules of Intestacy
may cause hardship.
How to change from joint tenants to tenants in common
|1. Assuming the
property is owned as joint tenants by two or more people and they
all agree, then the Land Registry require you to send them a 'Mutual
Notice of Severance of Joint Tenancy' signed by all joint owners.
They will require the full address of the property and the title number.
A charge may be made by Land Registry if you are unable to provide
the title number. Severing a joint tenancy is a service English Wills
is able to provide.
|2. You can still
sever a joint tenancy even if a co-owner is uncooperative. This is
called a 'Unilateral Notice of Severance of Joint Tenancy', if this
is appropriate ask for details.
|However, if a
person wishing to sever is separated but not divorced, and the husband
(or wife) or partner i.e paying the mortgage, a Unilateral Notice
could give grounds to cease paying either the whole or part of the
|It is important
to remember that legislation and tax law changes from time to time
and the steps you take today may be inappropriate and require alteration
in the future. It is your responsibility to review your Will every
2 or 3 years to ensure that it still suits your circumstances.
|There may be times when a home is owned purely by either one or the other of the husband or wife. This may cause problems in terms of equalisation of an an estate or in terms of securing the future of the spouse not named on the title deeds if no Will existed.
|We are able to advise our clients on the best course of action and the pitfalls that must be avoided under the Pre-Owned Asset Tax legislation and Stamp Duty Land Tax charges levied by the Land Registry.